A collection of observations, news and resources on the changing nature of innovation, technology, leadership, and other subjects.

November 14, 2016

I recently participated in a Treasury Identity Forum organized by the US Treasury Department in Washington, DC.The Forum focused “on the critical role of legal identity for financial inclusion, economic development, and anti-money laundering/counter financing of terrorism (AML/CFT) safeguards, and the development of new technology identification/authentication solutions to help achieve these goals.”It brought together stakeholders from governments, financial service companies, FinTech startups and technologists to better understand how emerging technologies and legal frameworks can help us develop the required digital identity systems.

I was a member of a panel on how government, business and research communities can collaborate in developing workable identity solutions.Let me summarize the points I made in my introductory remarks.

From time immemorial, our identity systems have been based on face-to-face interactions and on physical documents and processes.But, the transition to a digital economy requires radically different identity systems.As the economy and society move toward a world where interactions are primarily governed by digital data and transactions, our existing methods of managing identity and data security are proving inadequate.Large-scale fraud, identity theft and data breaches are becoming common, and a large fraction of the world’s population lacks the credentials needed to be part of the digital economy.

October 11, 2016

Why do firms exist? Ronald Coase, - the eminent British economist and University of Chicago professor, - addressed this question in The Nature of the Firm, - a seminal paper published in 1937 which along with other major achievements earned him the 1991 Nobel Prize in economics.

Professor Coase explained that, in principle, a firm should be able to find the cheapest, most productive, highest quality goods and services by contracting them out in an efficient, open marketplace. However, markets are not perfectly fluid. Transaction costs are a kind of friction incurred in obtaining goods and services outside the firm, such as searching for the right supply chain partners, establishing a trusted relationship, negotiating a contract, coordinating the work, managing intellectual property and so on. Firms came into being to make it easier and less costly to get work done.

A recent IBM report, - Fast forward: Rethinking enterprises, ecosystems and economies with blockchains, - harks back to Coase’s paper to analyze the potential value of blockchains. The report notes that while transaction costs are lower within firms, “in recent years as enterprises have scaled, the added complexity of operations has grown exponentially while revenue growth has remained linear.The result?At a certain point, organizations are faced with diminishing returns.Blockchains have the potential to eradicate the cost of complexity and ultimately redefine the traditional boundaries of an organization.”

“Distributed ledger technology (DLT), more commonly called blockchain, has captured the imaginations, and wallets, of the financial services ecosystem,” notes the report, citing a few statistics as evidence: over 90 central banks are engaged in DLT discussions around the world; more than 24 countries have already launched blockchain-based initiatives; 80% of banks predict that they’ll launch blockchain projects by 2017; over 90 financial and technology companies have already joined blockchain consortia; over the past 3 years; more than 2,500 patents have been filed; and $1.4 billion has been invested in blockchain-based startups over the same time span.

But, significant hurdles must be overcome before the advent of large-scale blockchain infrastructures. The WEF correctly warns that this will take time.Not only are there major technology and standards issues to be worked out, but the industry will have to collaborate with governments around the world to develop the appropriate legal frameworks and regulatory environments.

August 29, 2016

From time immemorial, our identity systems have been based on face-to-face interactions and on physical documents and processes.But, the transition to a digital economy requires radically different identity systems.In a world that’s increasingly governed by digital transactions and data, our existing methods for managing security and privacy are no longer adequate.Data breaches, identity theft and large-scale fraud are becoming more common.In addition, a significant portion of the world’s population lacks the necessary digital credentials to fully participate in the digital economy.

Last month, the World Economic Forum (WEF) published an excellent report, A Blueprint for Digital Identity.The report lays out a framework for the creation of digital identity systems, discusses the benefits that these systems would bring to its various stakeholders, and argues that financial institutions should lead their development.It also includes a primer on identity, which clearly explains what identity is all about.

Identity plays a major role in everyday life. Think about going to an office, getting on a plane, logging to a website or making an online purchase. While all around us, we generally don’t pay much attention to our identity credentials unless something goes wrong. But, it’s a highly complex and interesting subject, which the report helped me better understand. Let me summarize some of what I learned.

“Why is identity important?,” the primer starts out by asking.“In an increasingly borderless and digital world, privacy and security cannot be ensured through the construction of walls around sensitive information.Identity is the new frontier of privacy and security, where the very nature of entities is what allows them to complete some transactions but be denied from completing others.To understand the importance of identity and the criticality of strong identity protocols that protect against cyber-risk and suit the needs of transacting parties, it is essential to understand what identity is, and its role in enabling transactions.”

The book is organized into three main sections.The first explains the blockchain from two complementary points of view: as a major next step in the evolution of the Internet; and as the architecture underpinning bitcoin, the best known and most widely held digital currency.The second and longest section describes how blockchain could potentially transform financial services, companies, government, the Internet of Things, and other key areas.The last section summarizes the major challenges that must be overcome as well as the governance required to fulfill the promise of blockchain.

“It appears that once again, the technological genie has been unleashed from its bottle,” write the authors in their opening paragraph.“Summoned by an unknown person or persons with unclear motives, at an uncertain time in history, the genie is now at our service for another kick of the can - to transform the economic power grid and the old order of human affairs for the better.If we will it.”

August 02, 2016

A few weeks ago, the World Economic Forum (WEF) published its annual list of the Top Ten Emerging Technologies for 2016.The technologies on the list have been worked on for years.But their inclusion in the Top Ten List indicates that each has now reached a market acceptance tipping point where its impact can be meaningfully felt.The Blockchain is one of the technologies in this year’s list, selected by the WEF panel of global experts because of its emerging potential to fundamentally change the way markets and governments work.

What does it mean for an infrastructure technology like the blockchain to have reached such a tipping point?The WEF report compared the blockchain to the Internet, noting that “Like the Internet, the blockchain is an open, global infrastructure upon which other technologies and applications can be built.And like the Internet, it allows people to bypass traditional intermediaries in their dealings with each other, thereby lowering or even eliminating transaction costs.”

I agree with this comparison and find it useful to help us understand how blockchains might evolve over the years. So, I’d like to compare the state of the blockchain in 2016 to the state of the Internet 25 years ago or so.

June 21, 2016

In early June I spent a few days in Mexico City.The main purpose of the trip was to participate and give a keynote at the 2016 Cumbre de Directores (Director’s Summit), a conference sponsored by Endeavor Mexico in collaboration with the IPADE Business School.Endeavor is a global not-for-profit organization dedicated to long-term economic growth by supporting high-impact entrepreneurship in over 25 cities around the world, including Mexico.The Director’s Summit is Endeavor Mexico’s major annual meeting, bringing together over 400 entrepreneurs and senior executives.

My talk was focused on the changing nature of innovation in the digital economy.A major part of the talk included a discussion of innovations in the digital payments and financial services ecosystem.My keynote was followed by two separate FinTech panels, where different entrepreneurs discussed the importance of FinTech in Mexico as well as their individual companies’ efforts in the area.That same evening I attended and spoke at a reception sponsored by Angel Ventures Mexico, an early stage VC firm where I also heard quite a bit about FinTech startups. My overall impression is that there’s considerable FinTech activity in Mexico, a large portion of which is aimed at financial inclusion.

Every year, the World Bank publishes the Global Findex database, a measure of financial inclusion around the world, including how individuals save, borrow, make payments and manage risks in over 140 countries.According to their latest report, - Global Findex 2014, - 62 percent of adults worldwide have an account at a bank, at another type of financial institution, or with a mobile money provider, - up from 51 percent in 2011.The 2014 report also noted that 2 billion adults remain without an account around the world, a 20 percent decrease from the 2.5 billion unbanked adults in 2011. Technology advances, particularly the rapid growth in mobile devices and digital financial services, are the major reasons for these dramatic improvements.

The Global Findex database includes data for each individual country. Their 2014 data for Mexico showed that about 39 percent of adults had accounts with financial institutions, - a significant improvement over the 27.4 percent of adults with accounts in 2011.But, Mexico still lags many of its peers in Latin America.Over half of all adults have financial accounts in Latin America as a whole, significantly above Mexico’s figure.

May 23, 2016

Last February, President Obama issued an Executive Order establishing the Commission on Enhancing National Cybersecurity within the Department of Commerce.The Commission is charged with “recommending bold, actionable steps that the government, private sector, and the nation as a whole can take to bolster cybersecurity in today’s digital world, and reporting back by the beginning of December.”

To gather the necessary information for its short- and long-term recommendations, the Commission is holding public meetings around the country, each focused on a different sector of the economy.On May 16, it met in New York City to discuss the challenges and opportunities facing the financial sector.The meeting included three panels, one on finance, one on insurance, and the third on research and development.

I was a member of the R&D panel, along with MIT professor Sandy Pentland, IBM Fellow Jerry Cuomo, and Greg Baxter, head of digital strategy at Citigroup.During our 90 minute panel, we each made introductory remarks based on our previously submitted briefing statements and then answered the commissioners’ questions.

April 18, 2016

Over the past several decades, information technologies (IT) have been fundamentally transforming companies, industries and the economy in general.In its early years, - ’60s, ’70s, ’80s - companies deployed IT primarily to automate their existing processes, - leaving the underlying structure of the business in place.It wasn’t until the 1990s, - with the pioneering work of Michael Hammer and others on business process reengineering, - that companies realized that just automating existing processes wasn’t enough. Rather, to achieve the promise of IT, it was necessary to fundamentally redesign their operations, examine closely the flow of work across the organization, and eliminate legacy processes that no longer added value to the business.

Organizational transformation was then taken beyond the boundaries of the company with the explosive growth of the Internet. The Internet made it significantly easier to obtain goods and services outside the firm, enabling companies to rely on business partners for many of the functions once done in-house.To compete effectively in an increasingly interconnected global economy, companies now had to optimize not only the flow of work within their own organizations but across their supply chain ecosystems.Over the past 20 years, such ecosystem-wide transformations have been disrupting the business models of industry after industry, - from retail and manufacturing to media and entertainment.

The banking industry has long been one of the major users of IT, - among the first to automate its back-end and front-office processes and to later embrace the Internet and smartphones.However, banking has been relatively less disrupted by digital transformations than other industries.In particular, change has come rather slowly to the world’s banking infrastructure.

April 11, 2016

For the past few decades, digital technologies have been systematically transforming one industry after another. The transformations have generally proceeded along three different stages. First comes the use of IT to improve the productivity and quality of production-oriented, back-end processes.Distribution comes next, leveraging the universal reach and connectivity of the Internet over the past 20 years.The transformation then reaches a tipping point when technology radically changes the user experience, - as has happened with the rise of smartphones over the past decade, - leading to a fundamental disruption of the industry and its business models.

While this digital disruption journey is ultimately inevitable, the pace varies widely across industries.The IT industry has been the most disrupted, - often by its own digital creations in a kind of sorcerer’s apprentice scenario.Over my long career, I’ve seen many once powerful IT companies done in by technology and market changes, and either disappear altogether or become shadows of their former selves.

Beyond IT, few industries have felt the impact of digital forces like media. Everything seems to be changing at once, from the way content is produced and delivered, to the sources of revenue and profits. In less than two decades, the global recorded music industry has lost over half its revenues, while the drop in newspaper advertising revenue in the US has been even steeper.Retail has also been undergoing major changes with the rise of e-commerce, as has telecommunications with the transition to mobile phones and wireless data.

How about the banking industry, which has long been a major user of information technologies, - including back- and front-office automation, ATM’s, Internet banking, data-driven risk management, fraud detection, and mobile financial apps?

January 19, 2016

Digital technologies are all around us, - increasingly ubiquitous and commoditized.But, are they a major source of competitive differentiation? Are they still a strategic value to business?Can digital innovation drive long term economic growth?

Several weeks ago, the McKinsey’s Global Institute (MGI) published a report addressing these questions.Digital America: A tale of the haves and have-mores aims to quantify the state of digitization of the US economy.The report introduces the MGI Industry Digitization Index, a methodology for exploring the various ways US companies are going about their digital journey, - based on 27 indicators that measure how they’re building digital assets, expanding digital usage, and creating a digital workforce.

“Digital innovation, adoption, and usage are evolving at a supercharged pace across the US economy,” notes the report in its opening paragraph. “As successive waves of innovation expand the definition of what is possible, the most sophisticated users have pulled far ahead of everyone else in the race to keep up with technology and devise the most effective business uses for it.”

January 12, 2016

Transformational innovations don’t always play out as originally envisioned.Once in the marketplace, they seem to acquire a life of their own.Lest we forget, the Internet started out as a DARPA sponsored project aimed at developing a robust, fault-tolerant computer network.ARPANET was launched in 1969, and by the mid-1980s, it had grown and evolved into NSFNET, a network widely used in the academic and research communities.And, the World Wide Web was first developed by Tim Berners-Lee at CERN in the late 1980s to facilitate the sharing of information among researchers around the world. They’ve both gone on to change the world, - to say the least.

The blockchain first came to light around 2008 as the architecture underpinningbitcoin, the best known and most widely held digital currency.But, as with the Internet, the Web and other major technologies, the blockchain has now transcended its original objective.It has the potential to revolutionize the finance industry and transform many aspects of the digital economy.

Two press announcements released in mid-December are serious milestones in its evolution. Let me explain.

November 17, 2015

The October 31 issue of The Economist featured the blockchain in its cover: “The Trust Machine: How the technology behind Bitcoin could change the world.” Its two articles on the subject explain what blockchains are about, as well as why we should care about an exotic technology that involves concepts from cryptography, game theory and distributed computing.

Right up front, the Economist distinguishes between three different notions that are often muddled up when discussing blockchains:

Bitcoin, the best known and most widely held digital currency, whose users can transact directly with each other with no need for a central authority, - be it a bank or government agency, - to certify the validity of the transactions.

The blockchain architecture underpinning bitcoin, whose protocols were specifically designed to control the creation and transfer of bitcoins.

The general concept of blockchain, a distributed database architecture with the ability to handle trust-less transactions where no parties need to know nor trust each other for transactions to complete.

Bitcoin has had a mixed reputation, due to its wild fluctuations in value and past links to illicit activities. And, bitcoin-specific blockchain concepts like mining might well be perceived as too wasteful of computing power and energy by all but the most libertarian of bitcoin supporters. But the advanced technologies and architectures underlying blockchains are being increasingly accepted as having important implications far beyond bitcoin and other cryptocurrencies.

The blockchain holds the promise to revolutionize the finance industry by bringing one of its most important and oldest concepts, the ledger, to the Internet age. Beyond finance, the blockchain “offers a way for people who do not know or trust each other to create a record of who owns what that will compel the assent of everyone concerned. It is a way of making and preserving truths.”

In a pre-Roundtable blog, Kemal Derviş, - Brookings VP, Global Economy and Development, - identified three major trends with the potential to redefine global development over the next 10 years: the growing adoption of digital payments serving people everywhere with near-frictionless transactions; the spread of Internet connectivity and digital literacy; and the harnessing of data to better serve the poor and to generate new knowledge.

Discussions were organized around six different sessions over three days. Each session looked at the impact of digital technologies on economic development through a different lens, including electronic payments, access to information and the future of work. Prior to the Roundtable, Brookings commissioned a policy brief for each session to help set the stage for the ensuing presentations and discussions.

The report introduces the Digital Evolution Index, which was created to quantify the unique digital journey being pursued by each of 50 advanced and developing countries, to measure the rate of change of their digital evolution, and to provide information-based insights to companies, investors and governments. The Index is based on four key underlying drivers:

Money was one of the themes in the exhibit, represented by four different objects: one of the world’s first gold coins produced over 2500 years ago; a 1375 banknote from the Ming Dynasty; a silver coin minted in Bolivia in the late 16th Century; and a plastic credit card exemplifying the changing role of money in the modern world. Why include money in such an exhibit? Because, as one of the podcasts noted, money, - along with sex and war, - has been one of the great constants in human affairs.

Transaction records actually pre-dated the advent of money. By analyzing the earliest recorded transactions, researchers believe that writing evolved in ancient Mesopotamia thousands of years ago, as an innovation to keep track of financial records. Money was later invented as a store of value and a medium of exchange to make commerce more efficient. For a long time, money was embodied in precious metals like gold and silver, but with the introduction of banknotes, money started to decouple from physical objects with intrinsic value.

“Today… we remain more or less content with paper money - not to mention coins that are literally made from junk,” wrote Harvard historian Niall Ferguson in The Ascent of Money: a Financial History of the World. “[W]e are happy with money we cannot even see. Today’s electronic money can be moved from our employer, to our bank account, to our favorite retail outlets without ever physically materializing. It is this virtual money that now dominates what economists call the money supply… The intangible character of most money is perhaps the best evidence of its true nature.”

Datafication is a fairly new concept associated with our recent data revolution. But digitalization, - its companion concept which captures the impact of the digital revolution on the economy and society, - has been in use since computers were widely adopted around 60 years ago. Its ensuing digital products have been generating all that data and its drastically lower technology costs have made it possible to store and analyze those oceans of information.

“In contrast to digitalisation, which enabled productivity improvements and efficiency gains on already existing processes, datafication promises to completely redefine nearly every aspect of our existence as humans on this planet. Significantly beyond digitalisation, this trend challenges the very foundations of our established methods of measurement and provides the opportunity to recreate societal frameworks, many of which have dictated human existence for over 250 years.”

February 17, 2015

On January 27, Citi and Imperial College held their third annual Digital Money Symposium in London. As in previous years, the Symposium convened a group of leaders in their field to explore the state of adoption of digital money and its economic and societal impacts around the world.

September 17, 2014

On September 9, Apple announced Apple Pay, an easy, secure way to make mobile payments using their latest devices, - the iPhone 6’s and Apple Watch. The reaction to the announcement has been mostly positive: “[F]or now, at least, analysts believe if there is any company to persuade consumers of the mobile wallet’s value, it is Apple.” Same with the payments community: “Well, hello Apple, and welcome to the payments industry. We’ve been holding the door open for you for a long time.”

Apple Pay is embracing a number of industry standards, including NFC (near-field communications) for contact-less payments; Secure Element, a dedicated device chip; and network-based tokenization to protect sensitive financial data. Apple is collaborating with the big credit card networks, several banks and a number of merchants in the development and deployment of Apple Pay. In addition, the company is hoping to stimulate innovation by publishing their APIs so developers can embed Apple Pay services in their apps.

Currently, the digital payments infrastructure is quite fragmented, with different players pursuing different standards. By embracing key industry standards, Apple Pay could encourage their widespread acceptance around the world, and thus help coalesce this fragmented payment ecosystem. In addition, by reaching out to financial institutions, merchants, application developers and others, Apple is helping bring together the different players in the payments ecosystem, something that’s absolutely essential to succeed in such a complex undertaking.

July 16, 2014

A few weeks ago, NY Times columnist David Brooks posted an OpEd on The Evolution of Trust. The OpEd is focused on Airbnb, the online platform where people list and book accommodations all over the world, which now has over 600,000 listings in more than 34,000 cities and 190 countries. Brooks thought that people would never rent rooms in their homes to total strangers. “But I was clearly wrong,” he writes. “And Airbnb is only a piece of the peer-to-peer economy. People are renting out their cars to people they don’t know, dropping off their pets with people they don’t know, renting power tools to people they don’t know.”

He attributes the growth of this peer-to-peer economy to 3 main trends. First is middle-class stagnation. Technology and globalizations have significantly reduced the employment opportunities and earning of middle-skill, middle-wage jobs. Many have thus had to invent their jobs and sources of income, including renting out rooms, cars and other possessions, and offering child care, pet boarding and a variety of other services.

Second, quite a number of people find the less expensive, one-of-a-kind goods and services now being offered by unique individuals more appealing than the mass-produced goods and services offered by companies. People with time to travel but little money prefer to stay in someone’s moderately priced spare room rather that in a more expensive standard hotel chain.

And, adds Brooks, “the big thing I underestimated was the transformation of social trust. In primitive economies, people traded mostly with members of their village and community. Trust was face to face. Then, in the mass economy we’ve been used to, people bought from large and stable corporate brands, whose behavior was made more reliable by government regulation. But now there is a new trust calculus, powered by both social and economic forces.”

February 11, 2014

Ever since I joined Citigroup as a strategic advisor in March of 2008, I’ve been spending a lot of time thinking about the ongoing transition toward a global digital money ecosystem. For over 2,500 years, money has played a central role in the rise of civilizations and in human affairs of all kinds. As a result, the historical transition to digital money is among the most exciting and important societal challenges in the coming decades. Its impact might well be up there with that of other major technology-based societal transformations, including electricity, radio and TV, and the Internet and World Wide Web.

The evolution to a digital money ecosystem involves a lot more than the transformation of money - cash, checks, credit and debit cards, etc, - from physical to digital objects that we will carry in our smart mobile devices. It encompasses the whole money ecosystem, including the global payment infrastructures, the management of personal identities and financial data, the global financial flows among institutions and between institutions and individuals, the government regulatory regimes, security and privacy issues, and so on.

Just about every aspect of the world’s economy is involved. Over time, mobile devices will truly become our personal windows into an increasingly global, digital economy. And, because continuing technology advances are now enabling us to bring the empowerment benefits of the digital revolution to just about everyone in the planet, digital money is a truly inclusive innovation with no apparent digital divide. Mobile phones and Internet access have gone from a luxury to a necessity that most everyone in the planet will soon be able to afford.

This evolution will take decades to fully play out, - historical transitions take their time. But, it’s most definitely underway, with an increasing number of market pilots and research studies taking place around the world.

February 04, 2014

On January 29 I attended the 2014 Digital Money Symposium in London, co-sponsored by Citi and Imperial College. The Symposium convened a group of leaders in their fields to explore the state of adoption of digital money and its economic and societal impacts around the world. This is the second such Digital Money Symposium, the first one having taken place in London in January of 2013.

I was a part of the Citi-Imperial team that organized the event. For this year’s Symposium, we developed a framework that would enable us to discuss the state of adoption of digital money on a more data-driven, scientific basis. We looked at digital money as a highly complex sociotechnical ecosystem, that is, a technology-intensive system that has major societal, economic and political implications, like cities, healthcare and education. To help us begin to quantify and understand this ecosystem, we developed the Digital Money Readiness Index, a set of global metrics that enables us to link digital money adoption to various measures of socio-economic development.

The Index is a multi-functional tool, encompassing publicly available data from 90 countries around the world. By analyzing its various interdependent components, the team computed a measure of how ready a country is to adopt digital money. Quantifying the progress being made by each country along the digital money roadmap should help understand the key obstacles the country faces, as well as the potential actions it could take to overcome them.

Overall, the Index aims to help answer two fundamental sets of questions:

What Matters?: What factors affect the adoption of digital money around world, and how do they vary across different countries and regions?

Why Bother?: Does digital money adoption really make a difference, and if so, can we quantify the benefit to governments, companies and individuals?

July 15, 2013

On June 26 I participated in a panel discussion on digital money at the Royal Society of Arts (RSA) in London. The RSA, - whose full name is the Royal Society for the encouragement of Arts, Manufactures and Commerce, - was founded in 1754 to “embolden enterprise, enlarge science, refine art, improve our manufacturers and extend our commerce”. Today, it calls itself “an enlightenment organisation committed to finding innovative practical solutions to today’s social challenges”.

We discussed the profound transformative power of digital money. Economic transactions are increasingly moving from the physical to the digital realm, democratizing financial services around the world and helping billions join the global digital economy and improve their standard of living. As we wrote in the pamphlet:

“Just as communications and publishing have been transformed by digital technologies, so too will financial services. The progress of digital money will inevitably surprise us and it will develop in unexpected ways, but we believe it is on the cusp of delivering a remarkable transformation in the global economy. It will end the divide between those who can and those who cannot participate in formal economic transactions. It may usher in a new era of more inclusive innovation that involves billions of more people around the world in constructing the services that affect their future.”

June 17, 2013

Last month, the McKinsey Global Institute published Ten IT-enabled business trends for the decade ahead. As is generally the case with McKinsey, this is a well researched, well written report. There are few surprises. Any technology expected to have a transformative impact on business over the next decade has to at least be already in the hands of leading edge users. Disruptive innovations take time to play out.

“Many trends reflect the growing dominance of the Internet as an enabling technology, as well as a model and metaphor for commercial and social interactions,” says the report in its introduction. “Twenty years into the Internet revolution, businesses and consumers have come to expect that information is a Google search away, friends and associates are always available on social networking sites, and goods and services (including public goods such as education and government services) can be had instantly from an online vendor anywhere in the world at any time of the day.”

The social matrix, the Internet of all things, big data and advanced analytics, and realizing anything as a services are the report’s top four trends. SMAC - Social, Mobile, Analytics & Cloud, - has become the new plastics, capturing the future of IT in one word, or rather, one acronym. Just about everyone agrees that these are foundational technologies, like the Internet twenty years ago, that every business must embrace.

The workshop brought together a mix of people from different disciplines, including anthropology, history, economics, business and technology. The agenda covered a wide variety of subjects, ranging from the methods used to keep track of transactions in ancient Mesopotamia and the pre-Columbian Inca Empire, to the advent of credit cards in the mid-20th century and the future of digital payments in the 21st century.

“The end of cash is on the agenda, seemingly everywhere. Constituencies rarely aligned - multinational payments companies, economic development and aid practitioners, nonprofit volunteers and venture capitalists - are coming together around the prospect of the supposedly imminent disappearance of physical currency objects. . .”

“Reaching further back in time, however, we also recognize that the era of cash - of tangible, physical objects of paper or metal serving as money - is, relatively speaking, a historical anomaly, especially seen from the point of view of 10,000 years of recorded human civilization. Archaeologists and historians of the ancient Near East have shown that money of account, recorded in transactional records, long pre-dated the minting of coin or other tangible objects used as a universal equivalent for exchange. In the beginning was not the coin, but the receipt. Is cashlessness a return, then, to a world of institutionalized, transactional record-keeping? If so, what questions ought scholars and practitioners be asking, now, about those past and possible future worlds?”

For several years now I’ve been convinced that the development of a global digital money ecosystem is among the most exciting and important societal challenges in the coming decades. It’s right up there, in my opinion, with other technology-based transformational innovations, including electricity, the telephone, radio and TV, and the Internet and World Wide Web.

Where are we in digital payments? Webster believes that 2012 will be viewed in the payments history books as a very good year. “Payments innovation fueled by the IP-enablement of devices used by consumers and merchants to interact drove payments innovation into high gear. Players large and small flooded the market with new applications, new business models, and new approaches to transforming the shopping experience.”

November 19, 2012

At its recent Symposium/ITxpo 2012 in Orlando, Gartner predicted that by 2015, about a quarter of all organizations will have created a new seat at the senior executive table - the Chief Digital Officer. Gartner’s prediction is based on the major transformation underway as companies are digitizing both their sources of revenue as well as their services.

“Organizations are digitizing segments of business, such as moving marketing spend from analog to digital, or digitizing the research and development budget. Secondly, organizations are digitizing how they service their clients, in order to drive higher client retention. Thirdly, they are turning digitization into new revenue streams. Gartner analysts said this is resulting in every budget becoming an IT budget. To address these changes, organizations will create the role of a Chief Digital Officer as part of the business unit leadership.”

I had not heard much about the Chief Digital Officer until I read about Gartner’s prediction. But, the more I’ve thought about it, the more I like the concept. Chief Digital Officer succinctly captures the future direction of the CIO role.

“Chief information officer (CIO), or information technology (IT) director, is a job title commonly given to the most senior executive in an enterprise responsible for the information technology and computer systems that support enterprise goals,” is how Wikipedia defines CIO.” While accurate, this definition feels somewhat dated.

September 10, 2012

The corporate research lab has radically changed over the past several decades. Corporate labs reached their peak in the 1960s and 1970s. As technologies and markets changed, most such labs declined in importance over the next twenty years. But, they are being reincarnated in our 21st century information economy as market-facing innovation labs, with significantly different and broader scopes than those of the original industrial economy research labs.

Most of these labs were established by large, successful industrial companies in the years after World War II. Their job was to push the frontiers of knowledge by conducting both basic and applied research, which would hopefully, over time, lead to new commercial technologies and products.

I joined the computer science department at IBM’s Thomas J Watson Research Center when I finished my university studies in 1970, and worked there for fifteen years. In those days, R&D were two very distinct activities, the R conducted by scientists in research labs, and the D conducted by engineers in product development labs. Marketing, was another distinct activity in a product’s life cycle. These various handoffs resulted in large time gaps between research, product development, and marketing, but since both technology and markets advanced at a relatively slow pace, there was little pressure to reduce the transition times across the gaps.

A very good 2007 Economist article, The Rise and Fall of Corporate R&D - Out of the Dusty Labs observed that this strong separation between R&D&M was common across all industries. John Seely Brown, former director of Xerox PARC, succinctly captured the prevailing attitude of research labs in those days with this quote in The Economist article: “When I started out running PARC, I thought 99% of the work was creating the innovation, and then throwing it over the transom for dumb marketers to figure out how to market it.”

September 03, 2012

I recently read an intriguing article in the NY Times: In the Ordinary, Silicon Valley is Finding the Next Big Thing, by columnist and Ohio State professor Steven Davidoff. The article focused on the recently announced deal between Starbucks and Square, the San Francisco-based mobile payments startup. Under the deal, customers will be able to pay for their purchases at any of Starbuck’s 7,000 US coffee houses using Square’s mobile phone app by simply telling their name to the cashier, who will just verify the customer’s picture appearing next to their name in the iPad-based digital cash register.

While the Square technology is very cool indeed, Davidoff’s key point is the ordinary nature of the innovation in question.

“The deal not only has the potential to change the way people pay for coffee and everything else, it also shows how small innovation applied to everyday tasks may be the next new thing for venture capital. Call it the rise of the ordinary innovators. . . And while it may be revolutionary, Square is really just an example of what Silicon Valley is increasingly about: process and networking [i.e. VC ecosystems] at its finest. . .

“Square shows how these venture capital networks can be used to transform the ordinary. Its idea was not particularly new, but Square designed a simple but usable device, patented some of the underlying technology, leveraged other technology like the iPad and added some marketing. With the Starbucks partnership, Square is also showing the opportunity for old-line companies to capitalize on their large customer bases.”

We were talking about the continuing evolution of the Internet, something Bob is uniquely qualified to discuss. Beyond his role as co-inventor of its key protocols, Bob has played a leading role in shepherding the Internet from its modest beginnings over forty years ago to its well recognized position as the engine of the digital revolution.

What do we mean by the Internet? The most concrete answer is that the Internet is the global system of interconnected computer networks based on the TCP/IP protocols co-developed by Cerf and Kahn. But, beyond the central role that TCP/IP has played, I believe that the success of the Internet is predicated on a few key architectural principles: open, simple and distributed.

August 13, 2012

Over the last few months there have been a spate of articles on the evolution to a cashless society as the use of mobile devices continues to grow around the world. The Death of Cash, Time for Cash to Cash Out?, Visions of a Cashless Society, andWhy Cash is Losing its Currency? are some of the titles. The articles are generally focused on two key aspects of mobile digital money: innovative technologies and apps, which are primarily being introduced in the more advanced economies; and the financial inclusiveness of the poorer segments of society in developing economies. Let me briefly explore an article in each of these two categories.

The Death of Cash, published by Miguel Helft in Fortune, is a good article of the first category. He writes about his experiences buying a cappuccino at a coffee house in New York City. He payed for it by simply telling the cashier “Charge it to Miguel,” and was done. That’s because the coffee house uses Square Register, an iPad-based digital cash register application, and Helft has Pay with Square, a digital wallet app in his smartphone.

Both products were announced last year by the San Francisco-based startup Square. Square Register is an iPad app that enables merchants to accept payments, generate digital receipts and manage their menu items and prices. Pay with Square is the companion smartphone app that let’s customers open a tab at any business that uses Register, and pay for their purchases by simply giving their name.

The smartphone app is linked to a credit card and your personal photo. The iPad Register app detects when you are in the store with Pay with Square open in your smartphone and displays your name and photo. After ringing up your purchases, the cashier makes sure your photo matches your face and then taps on it to charge the purchases to your linked credit card.

Just before posting this blog, it was announced that Square’s mobile payment offerings will be available at Starbucks’ 7,000 US stores. Somewhat similar capabilities are being pursued by a number of other vendors, including PayPal, Verifone and Google.

July 23, 2012

Last month, the US Agency for International Development (USAID) and Citi announced a partnership aimed at accelerating mobile money adoption in developing countries. The partnership will initially focus its work in Colombia, Haiti, Indonesia, Kenya, and the Philippines. Its efforts will later be extended to Peru, Tanzania, Uganda and Zambia.

“Of the five billion mobile phone users worldwide, nearly two billion lack access to banking services, instead relying on cash transactions that expose them to potential theft, fraud or loss, and high-cost lending and remittance providers that leave them vulnerable to endless debt and high fees,” said the joint press release, and later added:

“USAID and Citi share a common belief that expanding the adoption of mobile financial solutions is a critical economic development strategy with the potential to drive growth and increase financial access and security for the developing world’s poor population. The effort seeks to strengthen alternatives to a cash-based system that is inefficient, costly, and prone to corruption.”

The digital technology revolution that has been transforming just about every aspect of life around us - from the way we interact with each other to the way we conduct business, - is now poised to usher the concept of mobile digital money to every corner of the world.

The report’s overall point of view is that personal data is a new asset class touching all aspects of society. It is potentially as valuable a resource in the 21st century as heavily traded physical goods like oil have been in the past hundred years. The report recommends the development of a principled, collaborative and balanced personal data ecosystem that is capable of evolving and improving over time.

This past May, the WEF released a second report, Rethinking Personal Data: Strengthening Trust. I found it to be an excellent overview on the subject. It observes that throughout history, economic value creation has been linked to the ability to move and trade physical goods. Similarly, “data needs to move to create value. Data sitting alone on a server is like money hidden under a mattress. It is safe and secure, but largely stagnant and underutilized.”

But, personal data lacks the trading rules and policy frameworks that exist for widely traded physical assets. As a result, there is little trust among the key stakeholders, - individuals, governments and the private sector, - which could undermine its long-term potential.

June 25, 2012

On May 30 and 31 I attended a meeting in Washington, the Rights and Bytes: Law and Big Data Workshop. The workshop explored progress in developing effective, legally sound, software-based solutions for the management of digital identities and for the protection and sharing of sensitive data. It was sponsored by ID³, a recently organized multidisciplinary non-profit institution with close ties to MIT’s Media Lab. ID³’s principal focus is to develop architectural frameworks and open source software solutions that embody the necessary policy principles for managing critical personal information so that it can be tested, verified, improved and scaled.

For the past few hundred years, governments around the world have developed laws, policies and practices to help us better get along with each other as we conduct the many transactions and interactions that are part of our everyday lives. But, as as Internet and digital technologies are increasingly integrated into just about all aspects of our lives, the laws, policies and institutions we developed for the physical world are way too impractical for our fast moving, fast changing digital world. We must somehow bring with us and adapt our policies and regulations from the physical to the digital world.

June 04, 2012

The Internet era was born in the mid 1990s. On August 9, 1995, Netscape’s IPO caught the world by storm. It marked the passage of the Internet from a network primarily used by universities, research labs and geeks in general, to a platform with a vastly expanded reach and connectivity. Anyone with a personal computer and Web browser, was now able to access all kinds of content, communicate with people all over the world, and conduct a variety of transactions over the Internet.

The Internet became an incredible platform for innovation, enabling startups, large institutions, and everyone in between to quickly develop and bring to market many new digital products and services. Its reach and connectivity led to the creation of all kinds of innovative, digital applications. It enabled individual and institutions to do all the things they did much, much better. It transformed all kinds of every day activities, including the way we work, shop, learn, bank, listen to music, watch films and deal with government.

But, getting online and being able to access the Web and the many applications built around it required a personal computer and an Internet account. And, e-commerce transactions required a credit card or bank account. So, while the Internet was truly empowering for those with the means to use it, it led to serious concerns about the growing digital divide both within countries and across the world.

The reach and connectivity we were all so excited about in this initial phase of the Internet era was in reality not so inclusive. As our economy was becoming increasingly digital, major new inequalities were now arising because so many around the world could neither afford a PC or an Internet account and had no bank relationship or credit card. It was disconcerting to have a digital revolution and new information-based economy that left out the majority of the world’s population.

“Although cloud is widely recognized as a technology game changer, its potential for driving business innovation remains virtually untapped. Indeed, cloud has the power to fundamentally shift competitive landscapes by providing a new platform for creating and delivering business value. To take advantage of cloud’s potential to transform internal operations, customer relationships and industry value chains, organizations need to determine how best to employ cloud-enabled business models that promote sustainable competitive advantage.”

The survey finds that cloud is still in the early stages of deployment, but its use is expected to grow over the next few years. Almost three quarter of the surveyed executive said that they have cloud initiatives underway, but only 13 percent said that they already have substantial cloud implementations. In three years, over forty percent expect to have such substantial implementations, while 90 percent will be involved with cloud initiatives in one way or another.

February 13, 2012

“A Pew Research Center poll in December found that only 50 percent of Americans reacted positively to the term capitalism, while 40 percent reacted negatively. Among Americans ages 18 to 29, more had a negative view of capitalism than a positive view, the survey found. Those young Americans actually viewed socialism more positively than capitalism. In other words, America’s grasping capitalists are turning young Americans into socialists.”

Kristof’s OpEd references a very interesting survey by Edelman, a global public relations firm which has been publishing an annual Trust Barometer for over ten years. Their 2011 Trust Barometer notes that “Trust Plunges in the United States While Resilient across the Globe.”

“Trust in business saw a two-point global increase, surging in Brazil, rising in Germany, and holding steady in China and India. The United States was the outlier, as trust dropped across all institutions - business, government, NGOs, and media. U.S. trust in business fell by eight points to 46 percent - placing the world’s largest economic power within five points of last-place Russia - and decreased in government by six points to 40 percent, putting the U.S. among the bottom four countries with the least trust in government. In the Trust composite score, an average of a country’s trust in all four institutions, the U.S. also fell to fourth from the bottom, while three years ago, it was in the top four.”

January 30, 2012

“Money, it is conventional to argue, is a medium of exchange, which has the advantage of eliminating inefficiencies of barter; a unit of account which facilitates valuation and calculation; and a store of value which allows economic transactions to be conducted over long periods as well as geographical distances,” writes Harvard historian Niall Ferguson in The Ascent of Money: a Financial History of the World.

For a long time, money was embodied in precious metals like gold and silver. The earliest known gold coins were produced in Lydia, in what is now Western Turkey about 2500 years ago. But, with the introduction of banknotes in seventh-century China, money started to decouple from physical objects with intrinsic value.

“Today . . . we remain more or less content with paper money - not to mention coins that are literally made from junk,” writes Professor Ferguson. “ . . . we are happy with money we cannot even see. Today’s electronic money can be moved from our employer, to our bank account, to our favorite retail outlets without ever physically materializing. It is this virtual money that now dominates what economists call the money supply . . .The intangible character of most money is perhaps the best evidence of its true nature.”

Given this intangible character of money, it is not surprising that major advances in information technologies have in turn led to major advances in the way we deal with money and payments. In the 1960s, 1970s, and 1980s, mainframes, minicomputers, data networks, transaction processing and data bases enabled financial innovations like ATMs and credit cards. Then in the 1990s, the wide adoption of the Internet and World Wide Web led not only to online banking, but paved the way for online shopping and e-commerce in general.

Smart mobile devices, broadband wireless networks, cloud-based services and big data are now ushering the next major phase in the evolution of money and payments. Money is continuing its centuries old transformation from being embodied in objects with intrinsic value, like gold and silver, to being nothing more than information in the digital wallets of our mobile devices as well as in our digital accounts someplace out there in the cloud.

Since just about everyone in the world, rich and poor alike, now has access to mobile devices, this major chapter in the history of money brings with it a universal inclusiveness that has been missing in the previous links between information technologies and money. Mobile digital money is coming, - over time, - to every individual in every corner of the world.

December 26, 2011

At the beginning of this year I wrote that the transition to universal mobile digital money is likely to be among the most exciting, important and challenging projects the world will undertake in the coming decades. Everything I have learned through the year indicates that, while still in the very early stages, the transition is well underway and gathering momentum.

This transition involves a lot more than the transformation of money - cash, checks, credit and debit cards, and so on, - from physical to digital objects that we will carry in our smart mobile devices. It encompasses the whole money ecosystem, including the global payment infrastructures, the management of personal identities and personal financial data, the global financial flows among institutions and between institutions and individuals, the government regulatory regimes, and so on.

In other words, just about every aspect of the world’s economy is involved. Over time, mobile devices will truly become our personal windows into an increasingly global, digital economy. This will take decades to fully play out, - historical transitions take their time. But, it is most definitely underway, with an increasing number of market pilots and research studies already taking place around the world.

As part of my work with Citi, I have been spending a lot of time thinking about the implications of this historical transition to a digital money ecosystem. The more I learn about it, the more I am convinced that this is truly a major paradigm shift that will change the very way we think about money.

December 19, 2011

A couple of weeks ago I attended a workshop on Inventing the Future of Finance cosponsored by ID³ and the MIT Media Lab. ID³, - the Institute for Institutional Innovation by Data Driven Design, - is a new multidisciplinary non-profit institution formed to develop architectural frameworks, open source software and educational content for the protection, sharing and monetization of sensitive data.

One of the key missions of ID³ is the creation of trust frameworks, which it defines as: “A combination of software mechanisms, contracts, and rules for defining, governing and enforcing the sharing and protection of information according to a common and independently verifiable standard of performance. Whenever possible, such governance mechanisms and contracts should be self-executing and self-correcting.”

January 17, 2011

In part I of this entry, I discussed the need to significantly transform the world's digital payments infrastructure to support the emerging evolution toward univeral mobile digital money. This transformation is a very complex an undertaking that will require significant research and innovation, and will likely play out over many years. Let me summarize some of the key challenges and opportunities.

Payment Hubs and Clouds

There is near universal agreement on the need for new payment hubs. As McKinsey's Payment Hubs: Redefining the Industry’s Infrastructure observes: “Banks are struggling to cope with transaction platforms that no longer serve their needs. A legacy of silo IT architecture combined with the need for data integration is leading these institutions to investigate payments hubs as a solution. There seems to be little consensus, however, as to what a payments hub is (even among those who are building them) and where it sits in the overall payments system.”

The study identifies three major kinds of consolidation or aggregation payment hubs.

The huge success of the Internet and World Wide Web was made possible by the continuous advances in digital technologies over the past few decades. The technology advances were absolutely necessary, - but not sufficient. The underlying IT architecture supporting the new Web-based applications had to radically evolve as well in order to take advantage of the advances in technology. And the organizational architecture of the private and public sector institutions that were embracing these new Web-based applications had to similarly change, in order to translate these technology advances into productivity and quality improvements.

Web applications typically run on a three tier IT architecture. In tier one, users link to the Internet with their PCs, smartphones and other devices, and access the Web with their browsers and related software. These tier oneclients connect to the tier twohttp-based web servers, which process the browser requests, access tier three back-end systems as required, collect all the needed information and send it back to the clients. Tier three comprises the different applications and information in back end systems, including mission critical transaction processing and data bases.

This three tier architecture has contributed greatly to the success of e-business solutions, by making it possible to quickly combine the standards, universal reach and connectivity of the Web-based systems in tiers one and two, with legacy and new applications, data bases and other back end resources in tier three.

As we now contemplate the evolution toward universal mobile digital money and smart digital wallets, I believe that we are facing major changes not unlike those that accompanied the advent of the Web and e-business, which will require similar technology, architecture and organizational innovations. The need for privacy and security concerning money, credit cards and personal IDs requires a highly sophisticated IT infrastructure to support this transition. Today’s payment systems and the organizations that operate them will need to significantly evolve in order to handle the combination of huge transactional volumes, very low costs and high degree of security, as well as compliance with the variety of financial regulations in countries around the world.

January 10, 2011

In 2010, the BBC and the British Museum collaborated in a project called A History of the World. The heart of the project was a BBC Radio program which focused on one hundred objects from the collection of the British Museum, around which you can tell the history of humanity over the past two million years. That history is presented in a series of fifteen minute podcast about each of the objects, written and narrated by British Museum Director Neil MacGregor and broadcast over the BBC throughout the year.

The objects and podcasts are organized into a number of themes. Money is one of the themes. It is represented by four objects:

a silver coin minted in Bolivia in the late 16th Century; these were known as pieces of eight and used as the world's first global currency throughout the Spanish Empire;

and a plastic credit card exemplifying the changing role of money in the modern world.

Money, as one of the podcasts observes, has been one of the great constants in human affairs, right up there with sex and war. Money was not necessary when people lived in small communities where they knew and trusted their neighbors and could therefore exchange labor, food or goods in kind. But the need for inventing money arose once civilization started to expand and people were dealing with strangers they may never see again and could not trust, as was the case in Lydia and neighboring communities a few thousand years ago. Money has played a major role in the world ever since, giving rise to commerce and economies, enabling the organization of companies and public institutions, and helping communities become more productive and raise their standard of living.

March 17, 2008

At the beginning of March, I started to work with Citigroup as strategic advisor for innovation and technology. This is a part-time position, which I will take on while continuing my current activities with IBM, MIT and Imperial College.

When I retired from my full time position at IBM last May, my intent was to continue working pretty much full time, but instead of doing so at one company - as I had done for 37 years - I wanted to now do so by working closely with a few different institutions. In particular, I wanted to split my formerly one-company job roughly three ways: one third with IBM; one third with MIT and other universities; and one third doing something entirely different. In addition, I wanted to continue my participation in various boards and committees.

The first two thirds of this equation has worked out very nicely since I started my post-retirement life in June, perhaps because they were essentially a continuation of activities I was already involved in. The final piece of the puzzle took more time, but I believe it is now in place with my new relationship with Citigroup.

There are multiple reasons why working with Citigroup is appealing. At the top is innovation, and in particular, how technologies are transforming whole businesses and industries. This was, after all, the subject of my recent graduate seminar at MIT, which I will be offering again this coming Fall.

It is one thing to talk about how disruptive technologies are transforming an industry - it is another to be part of that industry, see it happen from the inside, and get personally involved in helping to formulate the proper strategies to take advantage of the disruptive transformations taking place all around us. So, when the recently appointed CEO Vikram Pandit offered me the opportunity to come work at Citigroup - it did not take me long to accept.